The facts of the case were representative of a general state of affairs that I would not be surprised to see existing in many, if not most, business insurance arrangements. By this, I do not mean that the trust used for a business insurance policy is often an ordinary flexible trust with beneficiaries who are not restricted to those business owners who have set up reciprocal arrangements – although there will undoubtedly be some of those – but that, once set up, there will often be no or insufficient further attention given to the arrangement, despite changing circumstances.So-called share purchase arrangements should not be put in place without advice and, once established, require regular maintenance. Key variables in share purchase arrangements include the share price, the required sum assured and, as in the Strover case, the persons intended to benefit under the policy. Advisers involved in implementing business insurance arrangements – and, as I said last week, far too little cover is put in place for this purpose – have an obligation to keep the cover and supporting arrangements under review. Of course, it is also in their commercial interest to do so. A commitment to keeping arrangements under review – and so constantly reflecting the client’s circumstances and objectives – is one of the characteristics of an adviser compared with a salesperson. An adviser can legitimately charge (directly or indirectly) for this service. Value is most certainly added beyond the sale of a financial product. In the Strover case, it appears that the trust in question was a flexible power-of-appointment interest-in-possession trust – not a special business trust – under which the co-partners were the default beneficiaries. It also included the family of the life assured, as well as the life assured, as potential beneficiaries. Such provisions are not recommended in business insurance cases. The reason for this is that it would then be arguable that the trust arrangement would be taken outside being a wholly commercial arrangement. If the arrangement between the business owners is not commercial, and because each business owner could bene- fit under the arrangement as a whole, there could be a reservation of benefit. It is worth noting that family members could be included in the discretionary class without this result but they would have to be co-business owners with reciprocal arrangements on arm’s-length terms for the commerciality test to be satisfied. If the arrangement is commercial, there is no disposal by way of gift and, if there is no gift, there cannot be a gift with reservation. Being caught by the dreaded gift with reservation rules would mean that the sum assured would form part of the deceased’s estate for inheritance purposes, even if the proceeds were paid to the co-partners. In the Strover case, the life assured was a potential bene- ficiary but there was no appointment made to him (or to others) when he retired from the business. A trust of this nature, set up on commercial terms, could have included a provision for the policy to rev- ert back to the settlor (the life assured) in the event of the firm’s dissolution or on the life assured’s retirement other than due to a condition covered by the policy. This would be an essential limitation if the policy included critical-illness cover and share purchase was to take place on diagnosis of an illness covered by the policy. Clearly, in the case in question, there was no such automatic reverter. In addition, some trusts, while excluding the family of the partner from benefit, would give the trustees the power to appoint benefits to any of the partners, including the settlor. This can be done without the gift with reservation provisions applying, provided the arrangement is commercial. However, in accordance with the Revenue’s guidance notes on the pre-owned assets tax issued last April, such business trusts under which the settlor may benefit, especially if they may benefit in accordance with the power of appointment vested in the trustees (and regardless of the fact that the arrangement is otherwise on commercial terms), are currently caught by the Poat provisions. Of course, with term insurance policies, it is unlikely that any charge will arise but it is clearly something to take into account. It is still hoped that the Revenue will reconsider the issue, given that the Poat charge was not intended for commercial arrangements.
Fund of funds and research house, Forsyth Partners has added to its UK team with the appointment of Sophie Huang as research analyst.Huang has been working as an independent consultant for the past two years after a prior seven year stint at UBS where she covered alternative investments.Forsyth has also poached Vanessa Heywood from Aberdeen […]
The merger of Britannic Group and Resolution Group has been appro- ved by the FSA. The new closed life fund consolidator will now be called Resolution plc.
GAM has been sold by UBS to Swiss bank Julius Baer as part of a 2.5bn deal. GAM is part of SBC Wealth Management, along with three private Swiss banks, all of which are part of the deal. The boutique manager was started in 1983 by the late Gilbert de Botton and has been owned […]
Glasgow-based Intelligent Pensions has doubled profits to 300,000 from 150,000 from fee income of 1.3m in the 12 months to its May 31 end of year.
- Top trends
News and expert analysis straight to your inboxSign up
Latest from Money Marketing
Scotland has introduced a new set of income tax bands, but pensions experts warn that the changes could cause issues with pension tax relief calculations. In the Scottish Budget today, the Government announced a new starter rate of 19p and then a 21p rate for those earning over £24,000. The higher rate of tax is […]
The scramble to do as many defined benefit transfers as possible while values remain high is unabated, and I am constantly amazed at how some firms have thrown caution to the wind in the hunt for their share of this – admittedly lucrative – opportunity. The problem is that advisers are putting their profits before […]
The FCA working group tasked with setting a template for fund charge disclosure is considering whether one or multiple templates would be more suitable. The institutional disclosure working group, chaired by transparency champion Chris Sier, has been tasked with creating a new template for fund costs and charges following the package of remedies outlined in […]